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Myanmar's Path Back to Financial Normality

By: Scott MacDonald | Friday, February 8, 2013

NEW YORK, NY (KWR) - February 8, 2012 -- As unrest, violence, and war spreads
across the Middle East, observers are struggling to keep pace with events.
Anti-government protests have toppled dictatorial regimes in Tunisia and Egypt,
challenged the authority of Iran's mullahs, monarchies in Jordan, Saudi Arabia,
and Bahrain, and dictatorships in Syria, Yemen, and Libya. Libya has descended
into a bloody civil war drawing international military action in support of
anti-government forces.

A major step for Myanmar came on January 17, 2013 when it was announced that
the Southeast Asian country is beginning to clear its hundreds of millions
of dollars in arrears owed to the World Bank (a total of $440 million) and
the Asian Development Bank ($512 million). The money put up for this normalization
of relations with two of Myanmar's major creditors came from a bridge loan
from the Japan Bank for International Cooperation. According to a World Bank
press release, Myanmar will accelerate reforms with the clearance of arrears
to the bank and the Asian Development Bank. Myanmar's relations with the World
Bank and Asian Development Bank were earlier complicated by human rights related
sanctions against the country.

The bridge loan is being followed by a $512 million loan package from the
Asian Development Bank, which was announced on January 28, 2013. This is the
first Asian Development Bank loan to Myanmar in almost 30 years and is earmarked
to finalize arrears clearance and sustain government efforts to revamp the
national budget process and modernize tax administration. Furthermore, it
will support trade policy reforms and capacity development, improve the investment
climate and small and medium-sized enterprise development. According to Stephen
Groff, Vice President of Operations for East Asia, Southeast Asia and the
Pacific: "This is a historic tipping point for Myanmar. To be sure the country
is best positioned to benefit from the resumption of donor aid, we are focusing
first on building blocks for stability and sustainability, which will ultimately
lead to major investments in road, energy, irrigation and education projects,
as well as investments in other sectors."

There are three significant factors at play in cleaning up Myanmar's debts
to the World Bank and Asian Development Bank. First and foremost, by putting
repayments back on track with these two developmental organizations, Myanmar
is unblocking a potential source of future loans for things such as infrastructure.
That is badly needed in a country that lacks a consistent supply of energy,
as reflected by daily electricity cuts in Yangon and the new capital of Nay
Pyi Taw. According to an IMF report (September 2012), "Roads are poor, financial
services are rudimentary, and living standards remain among the lowest in
the region. The lack of skills in younger generations points to the erosion
of human capital caused by the poor education policies over the past few years." Consequently,
normalizing relations with two key multilateral lending agencies is an important
step in the right direction.

Second, the Japanese have seized the opportunity in recognizing Myanmar's
opening to the outside world. Myanmar, a country of 55 million people, has
a vast array of natural resources and could develop into a middle class market
over time. At the same time, Myanmar's willingness to deal with Japan as a
close partner is important as it provides both countries a geopolitical friend
vis-a-vis a more assertive China. It should not be forgotten that Myanmar's
opening over the past two years was partially stimulated by local concerns
that their country was being taken over by China. Consequently, the development
of strong Japanese-Myanmar relations could be a new cornerstone to regional
geopolitics. The New York Times' Shibani Mahtani (January 28, 2013) observed: "The
Japanese hope that they, as well as the country's companies, will be at the
forefront of Myanmar's rapid transformation from a pariah state to one of
Southeast Asia's most promising economic opportunities."

Third, Myanmar's efforts to normalize relations with the World Bank and Asian
Development Bank send a powerful signal to the international business community
that the country is working hard to make itself an attractive place to do
business. While private sector debt remains a challenge, the clearing of public
sector debt allows the once isolated country to work more closely with development
partners to assess Myanmar's most pressing needs. Along the same lines, it
helps the government and the multilaterals to determine a pipeline of priority
projects.

Myanmar shares borders with three regions that have implemented considerable
economic reforms - China, India and Southeast Asia. All three regions have
become an integral part of the global economy, taking advantage of international
trends in trade and investment to achieve enviable levels of economic growth
and development in emerging markets. In Southeast Asia, Thailand, Singapore,
Malaysia and Indonesia are regarded as highly successful on the economic front.
Other countries, such as the Philippines are catching up and Vietnam is making
more gradual progress. Myanmar is a member of the Association of Southeast
Asian Nations (ASEAN) group as are most of its neighbors, but has lagged behind
in its economic development. With the push to normalize relations with its
major multilateral development bank creditors, Myanmar is taking a step to
joining the ranks of Asia's tiger economies.

The views expressed within do not necessarily relect those
of KWR International, Inc.

While the information and opinions contained within have
been compiled from sources believed to be reliable, KWR does not represent
that it is accurate or complete and it should be relied on as such. Accordingly,
nothing in this article shall be construed as offering a guarantee of the accuracy
or completeness of the information contained herein, or as an offer or solicitation
with respect to the purchase or sale of any security. All opinions and estimates
are subject to change without notice. KWR staff, consultants, authors and contributors
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